As Square evolves its business, it shows other fintech companies what can be done when they think outside traditional payment solutions.
So, what does the news last week about the company’s intent to apply for an industrial bank charter forecast for other payment facilitators?
Square isn’t the first company operating as a payment facilitator to apply for a banking charter in recent months. Klarna secured its banking license in Sweden this summer. And Paytm announced in January that it had formed a payments bank in India.
Will ISVs at some point be scrambling for their own charters?
Not likely, according to Rick Oglesby, president of AZ Payments Group.
“It’s an approach that only a select few payment facilitators will or should attempt,” Oglesby said. “Setting up, owning, and managing a bank of any type presents a special set of challenges. It requires scale, sophistication and focus and it’s outside of the core competencies of most software firms.”
When it comes to Square, however, Oglesby sees the move as a smart one, because of the company’s approach to the market.
“Square is a product company masquerading as a payments company. Product companies want control over their products, so it makes sense for Square to want to own a bank, which will give it full control over its lending products,” Oglesby said.
“The potential for disruption is high. Few banks (or payments companies) focus on product design the way Square does, so there is a competitive advantage to be leveraged.”
Disruption was a stated goal when Klarna received its charter. Jim Lofgren, head of the company’s North American business, told PaymentFacilitator.com at the time that the company had the “ability and tools to challenge the traditional banking model on equal terms.”
For its part, Square has told news outlets that it plans to use the license to offer loans and deposit accounts to small businesses.